Commonwealth Inscribed Stock Amendment Bill 2009

Bills Digest no. 96 2008–09

Commonwealth Inscribed Stock Amendment Bill
2009

WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.

To enable the Treasurer, at
his/her discretion, to declare special circumstances and increase
the limit on the Commonwealth s standing borrowing authority to the
Treasurer from its current limit of $75 billion to a total of $200
billion.

The Commonwealth Government currently has a standing authority
to issue up to $75 billion[1] worth of Commonwealth Government Securities (also known
as government bonds) at face value.

Commonwealth Government Securities can currently take the form
of either Treasury Notes[2] or Treasury Bonds.[3] New securities are auctioned by the Australian
Office of Financial Management for a particular coupon or face
value. As at 31 December 2008, there was $57.8 billion of
Australian-dollar denominated debt on issue (various maturities)
and $7.9 million of foreign currency denominated debt on
issue.[4]

The existing legislation specifies that an amount up to $75
billion (section 5) can be issued. This Bill would allow the
Treasurer to declare special circumstances and increase the limit
by $125 billion to a total of $200 billion. As the Bill is written,
it allows the Treasurer a great deal of discretion in raising the
limit. Essentially, the Treasurer must only be satisfied that that
there are special circumstances that would justify increasing the
limit. The declaration by the Treasurer would not be a legislative
instrument (proposed subsection 5A(6)) nor would
it be subject to judicial review under the Administrative
Decisions (Judicial Review) Act 1977 (the ADJR Act)
(proposed subsection 5A(7)). The declaration of
special circumstances could theoretically be left in place forever
and there are no criteria listed for its revocation. It should be
noted that the Treasurer cannot declare special circumstances while
a previous declaration is in force.

The Senate Scrutiny of Bills Committee noted the declaration s
exclusion from the ADJR Act but made no further comment, simply
leaving for the Senate as a whole the question of whether the level
of parliamentary scrutiny is sufficient in the circumstances.
[5]

Mr Nigel Ray (Executive Director, Fiscal Group, Treasury), in
response to questioning at the Senate Committee inquiry into the
Bill, has stated that the increase in the borrowing limit would
(roughly) finance the initiatives announced in the Nation
Building and Jobs Plan[6] over the forward estimates period,
along with meeting other recent Government commitments, such as the
equity injection for the special purpose vehicle for commercial
property:

Senator RYAN Are you saying
that extra borrowing will be required to actually finance all these
deficits or there would be change left over?

Mr Ray The cumulative deficits
I think are $118 billion, or something around that. There are
additional financing requirements, including, for example, to
inject equity into the special purpose vehicle for commercial
property. There are a number of other, if you like, below the line
financing transactions that are around.

Senator RYAN But, in
shorthand, you see the loan facility of $200 billion that is being
sought from the parliament, raising the requirement, being fully
utilised by the announcements in this package and other
announcements that have been made to this point or almost fully
utilised; maybe not to the exact ultimate?

Mr Ray The way that the
arithmetic works is that the cumulative deficits are about $118
billion. There are other gross financing needs that the government
has, because of various things it has announced. As things stand,
the additional $125 billion would fund all of those needs.

Senator RYAN And we have how
much outstanding at the moment?

Mr Ray We have $58 billion of
Commonwealth government securities on issue now roughly.[7]

The Bill has been referred to the Senate Standing Committee on
Finance and Public Administration for inquiry and report by 10
February. Details of the inquiry are at
http://www.aph.gov.au/Senate/committee/fapa_ctte/stimulus_package/index.htm.

The existing provisions specify an upper limit of $75 billion
whereas the current Bill is allows the Treasurer considerable
flexibility in responding to adverse economic circumstances. The
Treasurer is given ultimate discretion over the Commonwealth
standing authority to borrow the additional $125 billion (up to
$200 billion). The decision to increase borrowings is not subject
to direct review by the legislature nor as an administrative
decision under the ADJR Act.

Item 1 contains the sole amendment to the Act
made by the Bill, new section 5A.

As previously mentioned, under new section 5A
the Treasurer need only be satisfied that there are special
circumstances that would justify increasing the current $75 billion
limit in order to make a declaration that increases that limit to
$200 billion. The meaning of special circumstances is not defined.
The declaration must be Gazetted (there is no requirement for
specific reasons to be given in the declaration), and then tabled
within 15 sitting days of Gazettal: new subsection
5A(2). However, it is not a legislative instrument (and
thus not disallowable by Parliament): new subsection
5A(6). Nor can it be challenged in the courts under the
ADJR Act: new subsection 5A(7)

Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277
2455.

[2] Short-term maturity securities, used to finance
mismatches between the Commonwealth s outlays and revenue streams
within the year that cannot be met by changes in the AOFM s
holdings of term deposits within the Reserve Bank of Australia. The
interest on a Treasury note is the difference between the issue
value and the par or face value.

[3] Medium- to long-term maturity securities that carry an
annual rate of interest fixed over the life of the security,
payable in six monthly instalments on the face value of the
security.

This work is copyright. Except to the extent of uses permitted
by the Copyright Act 1968, no person may reproduce or transmit any
part of this work by any process without the prior written consent
of the Parliamentary Librarian. This requirement does not apply to
members of the Parliament of Australia acting in the course of
their official duties.

This work has been prepared to support the work of the Australian
Parliament using information available at the time of production.
The views expressed do not reflect an official position of the
Parliamentary Library, nor do they constitute professional legal
opinion.

Feedback is welcome and may be provided to: web.library@aph.gov.au. Any
concerns or complaints should be directed to the Parliamentary
Librarian. Parliamentary Library staff are available to discuss the
contents of publications with Senators and Members and their staff.
To access this service, clients may contact the author or the
Library’s Central Entry Point for referral.